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  • Writer's pictureSam Wilks

The relationship between praxeology and the study of money and banking.

The study of money and banking, at its core, is deeply intertwined with the principles of human action and the broader field of economics. Leveraging the perspectives and the methodological framework of praxeology, we can dissect the relationship between praxeological analysis and the intricate realm of money and banking.

Money as a Product of Human Action:

Money is a market invention that emerged from barter systems to solve the double coincidence of wants problem. Money's origin and evolution, from commodity money to our modern-day fiat systems, can be analyzed praxeologically as a series of purposeful human actions aimed at facilitating trade and preserving wealth.

The Role of Banking and Credit Expansion:

The role of credit expansion, often driven by the banking sector, create economic booms and busts. When banks expand credit beyond their actual reserves (often facilitated or encouraged by central banking policy), it distorts interest rates and leads to malinvestments, which eventually require correction. Artificially low interest rates, influenced by bank credit expansion, misguides entrepreneurs and investors, causing the business cycle's boom-bust pattern.

The Knowledge Problem and Central Banking:

The knowledge problem, the idea that no single entity can possess all the dispersed information of an economy, applies critically to central banking. When central banks attempt to set monetary policy or intervene in the economy, they unintentionally cause more harm than good due to this inherent limitation. This insight upsets many economic academics, however, facts don't generally care about their feelings.

Historical and Cultural Insights on Banking:

One could explore how different societies, cultures, and historical contexts have influenced their banking systems and monetary policies. Such insights are paramount in understanding the real-world effects and challenges of banking and monetary interventions.

Evolution of Money and Private Banking:

Several prominent and wise economists have attempted to promote putting the Genie back in to the bottle, the denationalization of money. Competition between private issuers of money could lead to better monetary outcomes than a government-enforced monopoly on money issuance. Praxeologically, this idea can be seen as an extension of how individuals might seek better monetary solutions in a free market setting. However, this would remove an industry employing hundreds of thousands of individuals, and regardless of the damage and harm done to the public, anyone that recommends removing "jobs" is considered ruthless or immoral.

Unintended Consequences in Monetary Policy:

For instance, while the intention behind an expansionary monetary policy might be to boost employment or economic growth, the unintended consequences could be asset bubbles, inflation, or economic distortions. These may lead to mass unemployment, poverty, and homelessness.

The relationship between praxeology and the study of money and banking underscores the centrality of purposeful human action in shaping monetary phenomena. Money, banking, and credit are not just abstract concepts but are deeply rooted in individual decisions, incentives, and the broader societal context. By applying a praxeological lens, one gains a holistic understanding of money and banking that recognizes both the micro-level actions of individuals and the macro-level outcomes of economies. From the author.

The opinions and statements are those of Sam Wilks and do not necessarily represent whom Sam Consults or contracts to. Sam Wilks is a skilled and experienced Security Consultant with almost 3 decades of expertise in the fields of Real estate, Security, and the hospitality/gaming industry. His knowledge and practical experience have made him a valuable asset to many organizations looking to enhance their security measures and provide a safe and secure environment for their clients and staff.

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